Monday, October 17, 2016

The Family Farm and Long Term Care

Many families have a
farm that has been in the family for generations. Title to these farms is often
transferred as an inheritance to one or more of the children in the next
generation.

In the past, the
biggest threat to keeping the farm in the family was the inheritance tax. Thankfully, the Federal Estate Tax system now
has an exemption from tax of over $5.4 million and the Pennsylvania Inheritance
Tax system has a family farm exemption from tax, provided certain conditions
are met.

Today, the biggest
threat to family farms is the cost of long term care. In-home care as well as
nursing home care can cost over $9000 per month. That cost can consume the
savings of the average family very quickly. Many families turn to the Medicaid program
to help pay for their loved one’s care.

However, Medicaid has
many complex financial qualification rules. In addition, the Medicaid
Estate Recovery Program seeks to recover the amount of Medicaid paid to the
person who received the benefit. The Medicaid Estate Recovery Program allows
the government to place a lien on any real estate owned by the Medicaid
recipient after death. Given the high cost of long term care, the lien could be
over $100,000 and dramatically affect the ability of a family to pass on a
family farm to the next generation. In
some cases, the farm may have to be sold to pay off the lien.

To protect the farm,
families need to change ownership of the farm from the current aging generation
to the younger generation well before a long term care crisis occurs. In the past, transferring the farm directly
to children was the preferred plan.
Today, the risk of financial distress, divorce, death and dysfunction
with children (and in-laws), has pushed parents to seek another option to an
outright transfer of ownership.

The irrevocable asset
protection trust has become the preferred method of protecting the family farm.
Title to the farm can be transferred to an irrevocable trust and sheltered from
the Medicaid Estate Recovery Program. An irrevocable trust also provides
protection from the risks associated with children’s lives, such as divorce. The
children will take title to the farm only at the death of the parents. These trusts
also permit the parents to live at the farm for the rest of their lives, allow for
the sale of the property to a child or other person, and provide advantageous
capital gains treatment of the farm.

Of course, asset
protection trusts should be created well before a long term care crisis. There is a five (5) year look back for
transfers of real estate under the Medicaid rules. However, if the transfer to the trust is done
five (5) years prior to applying for Medicaid, that transfer will not affect
eligibility for Medicaid benefits. Skilled elder law attorneys can help you
plan in advance with asset protection trusts and save the family farm for
future generations.

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About Me

I am a Pennsylvania lawyer with over 35 years experience in estate planning and elder law. I was selected by US News Best Lawyers® as its Lawyer of the Year in Elder Law for 2014 for the Harrisburg, Pennsylvania metropolitan region.
I am of counsel to Marshall, Parker and Weber, a law firm which has offices in Williamsport, Jersey Shore, Wilkes-Barre and Scranton, Pennsylvania. I am past President and a founder of PAELA (the Pennsylvania Association of Elder Law Attorneys). However, the views expressed on this site are my own and not those of PAELA or of Marshall, Parker and Weber.
Most importantly I am a husband, father and grandfather.